A. Understanding Section 16 Changes

• What has changed about Section 16?
• What is the transition period?
• Should we expect to file more Forms 4 due to implementation of the Sarbanes-Oxley Act?

B. Electronic Filing of Section 16 Reports

• Are Section 16 reports now required to be EDGARized?
• What is the process by which insiders may file their Section 16 reports electronically?
• How does an insider or an agent for filing obtain a CIK number?
• Must powers of attorney relating to the execution of a Section 16 report still be filed with the report?
• May Forms 4 still be filed by paper?

C. Calculation of Filing Deadlines for Forms 4

• When does the two-business day deadline start running for Form 4 filings?
• Are there any exceptions to the two-business day filing deadline for Forms 4?

D. Other Section 16 Reports

• Are there any transactions that can still be reported on a Form 5?
• Are transactions that used to be exempt from Section 16(a) reporting still exempt from reporting?
• Is there still a Form 3?

E. Filling Out Form 4

• Is there a new Form 4 associated with all the changes in reporting?
• How should I report total holdings when there are multiple transactions within a few days?

F. Disclosure of Deficient Filings

• Does a company have to make disclosure under Regulation S-K, Item 405 in its proxy statement (or Form 10-K) if a Form 4 is incorrect?
• Is there a transition period for disclosure under Regulation S-K, Item 405 with the new reporting requirements?
• What about the 5:30 p.m. EDGAR filing deadline for Section 16 reports?

G. Website posting of Section 16 Reports

• By what date must Section 16 reports be posted on issuer websites?
• How much time do issuers have to post Section 16 reports filed by their insiders?
• May issuers post Section 16 reports by providing links to a third-party provider?

H. Emerging Best Practices

• How can issuers assist their insiders to comply with the filing requirements of Section 16?

A. Understanding Section 16 Changes.

What has changed about Section 16?

Section 403 of the Sarbanes-Oxley Act, enacted July 29, 2002, amended Section 16 of the Securities Exchange Act and required the SEC to take certain actions to reform Section 16 reporting. Because of the statutory and regulatory changes:

• All Forms 4 must now be filed with the SEC by the second business day following the date on which the reportable transaction occurred;
• More transactions are now required to be reported on Forms 4; and
• Effective as of June 30, 2003:
• All Section 16 reports must be filed electronically; and
• Any issuer that maintains a website must post all Section 16 reports filed by its insiders on its website by the end of the business day following filing.

As part of the statutory reform, the SEC is required to post on its website all electronically filed Section 16 reports by the end of the business day following filing.

The adopting releases for the relevant regulatory reforms are Release No. 34-46421 , issued on August 27, 2002, and Release No. 34-47809, issued on May 7, 2003.

What is the transition period?

The "accelerated" two business day filing of Forms 4 has been effective since August 29, 2002, pursuant to Release No. 34-46421.

The electronic filing and website posting by issuers of Section 16 reports is mandatory as of June 30, 2003 (one month prior to the statutory deadline) pursuant to Release No. 34-47809.

Should we expect to file more Forms 4 due to implementation of the Sarbanes-Oxley Act?

There will be many more Forms 4 filed now than previously for two reasons:

• SEC regulations implementing Section 402 of the Sarbanes-Oxley Act provide that many of the transactions that used to be eligible for delayed reporting on Form 5 must now be reported on Form 4. In particular, the regulations now require that many benefit and compensation plan transactions be reported on Form 4. Previously, reporting persons could aggregate these types of transactions on one year-end Form 5. These regulations probably will cause many issuers to amend compensation and benefit plans (or to design new ones) to reduce the number of Section 16 filings they trigger.
• The current two-day time frame in which Forms 4 are due makes it more likely that insiders will file a Form 4 for each individual transaction rather than aggregating on one Form 4 all transactions that occurred during a calendar month (as they did previously under the old Form 4 reporting deadline of 10 days after the month in which the transaction(s) occurred).

B. Electronic Filing of Section 16 Reports.

Are Section 16 reports now required to be EDGARized?

All Section 16 reports must be filed electronically on the SEC EDGAR system as of June 30, 2003. Until that date, reporting persons still have the option of filing by paper. The address of the SEC's website dedicated to filing Section 16 reports is www.onlineforms.edgarfiling.sec.gov.

The SEC's website will enable filers to attach exhibits, such as powers of attorney, and will allow data tagging so that investors will be able to search the filing database. Although the website will not permit filers to input and save information for later retrieval and revisions before filing, the SEC does intend to so enable the system in the future. In the meantime, many third-party providers, such as RR Donnelley Financial, have websites that will allow filers to input and save information for later retrieval at minimal additional cost.

In order to file Section 16 reports via EDGAR, each reporting person must have a CIK number, which is obtained from the SEC by filing a Form ID. (See "How does an insider or an agent for filing obtain a CIK number?" below.)

What is the process by which insiders may file their Section 16 reports electronically?

Because the reporting requirement rests with each individual insider, each Section 16 insider must obtain a CIK number to file Section 16 reports. This is true whether the insider files directly on the website provided by the SEC or on a website of a third-party provider, such as RR Donnelley Financial, offering value-added services. The SEC's website for Section 16 reporting is www.onlineforms.edgarfiling.sec.gov and RR Donnelley Financial's website for Section 16 reporting is www.rrdnetfiler.com. Once the insider accesses an appropriate website, he or she should fill in the necessary information, attach any required exhibits (such as powers of attorney), and follow the online instructions for filing.

How does an insider or an agent for filing obtain a CIK number?

You can download a Form ID from the SEC's website at www.sec.gov/about/forms/formid.pdf. The completed form should be faxed to the SEC at (202) 504-2474 or (703) 914-4240. The SEC will not process requests received by mail or telephone. Remember that each reporting person requires only one CIK number regardless of the number of companies for which he or she has a filing obligation. Reporting persons may not file Section 16 reports using the CIK number of the applicable issuer. Because electronic filing is required effective June 30, 2003, any individual who needs a CIK number should begin the process of obtaining one as soon as possible.

Must powers of attorney relating to the execution of a Section 16 report still be filed with the report?

Yes. However, Telephone Interpretation R.7S (found near the bottom of the(1999 Supplement) provides that once a Section 16 power of attorney is filed with the SEC it does not have to be attached to subsequent filings. The better practice is to file the power of attorney with each report filed pursuant to that power of attorney. The ability to attach documents electronically should make attaching powers of attorney a relatively simple matter.

For paper filings, powers of attorney are simply stapled to the back of the report. For electronic filings, websites will provide a mechanism by which documents may be attached.

May Forms 4 still be filed by paper?

Yes, but only until June 29, 2003. Thereafter, all Section 16 reports must be filed electronically. Because the filing deadline is two business days, paper copies must be sent by overnight courier the day after the transaction occurs.

Although the SEC will not accept Section 16 reports by fax, reporting persons may fax a Section 16 report to a third-party service provider in Washington, D.C., and the third-party service provider will hand deliver the filing to the SEC. For information on this possibility, contact a customer service representative.

C. Calculation of Filing Deadlines for Forms 4.

When does the two-business day deadline start running for Form 4 filings?

Forms 4 are due two days after the date of execution. For example, if a reportable transaction is executed at any time on Tuesday, the Form 4 will be due at the SEC by 10:00 p.m. Eastern Time on Thursday, assuming there are no intervening holidays. Intervening weekend days or holidays are not counted. (See "What about the 5:30 p.m. EDGAR filing deadline for Section 16 reports?" below.)

Are there any exceptions to the two-business day filing deadline for Forms 4?

There are two categories of exceptions to the two-business day filing deadline for Forms 4. Each of these exceptions is allowed because the transaction execution date is not within the control of the reporting person. The two categories of exceptions are:

• Transactions triggered by contracts, instructions or written plans in accordance with Rule 10b5-1(c); and
• Discretionary transactions under Rule 16a-3(f), such as fund-switching transactions pursuant to employee benefit plans.

The applicable deadline for transactions that fall into either category is two business days after the day that the broker, dealer, or plan administrator notifies the insider that there was a transaction (referred to as the "deemed transaction date"). This extended filing period applies only as long as notification occurs within three business days of the transaction. Therefore, for those transactions qualifying for an exception from the two-business day deadline, the report must be filed no later than the sooner of (i) five business days after the actual transaction day and (ii) two business days after the deemed transaction date.

The broker, dealer, or plan administrator can notify the insider of a transaction orally, in writing, or electronically. The new Form 4 has an additional column for the notice date or deemed transaction date.

D. Other Section 16 Reports.

Are there any transactions that can still be reported on a Form 5?

Because transactions that are exempt from Section 16(b) liability are no longer reportable on Form 5, virtually the only transactions that may still be reported on a Form 5 are:

• Bona fide gifts and inheritances under Rule 16b-5 and Rule 16a-3(f);
• De minimus transactions qualifying under Rule 16a-6;
• Acquisitions and distributions associated with reclassifications and consolidations under Rule 16b-7 and Rule 16a-3(f); and
• Holdings and transactions that should have been reported previously, but were not, as provided in Rule 16a-3(f).

Common transactions that used to be eligible for delayed reporting on Form 5 but which now must be reported on a Form 4 include grants of options, SARs, restricted stock, and phantom stock.

Are transactions that used to be exempt from Section 16(a) reporting still exempt from reporting?

Yes. This includes stock splits and normal acquisitions (not fund switching) pursuant to a Qualified Plan, an Excess Benefit Plan, or a Stock Purchase Plan, as each of these terms is defined in Rule 16b-3(b). Accordingly, acquisitions of stock pursuant to systematic payroll deductions under a 401(k) plan remain exempt from Section 16 reporting. However, acquisitions of reportable securities acquired pursuant to these plans must be included in the total holdings figures if another transaction triggers a Section 16 report filing.

Is there still a Form 3?

Yes, and the reporting requirements and deadlines for Forms 3 remain unchanged:

• 10 calendar days after a person becomes a Section 16 insider; or
• the same day an issuer registers its securities under Section 12 of the Securities Exchange Act.

In those situations where an insider is required to file a Form 4 before the Form 3 is due, the SEC encourages reporting persons to file both reports on the same day.

E. Filling Out Form 4.

Is there a new Form 4 associated with all the changes in reporting?

Yes, and it can be downloaded off the SEC's website under Forms, Insiders or at www.sec.gov/about/forms/form4.pdf. The new Form 4 has a column 2A in Table I and a column 3A in Table II for reporting "deemed" transaction dates, along with other minor changes.

How should I report total holdings when there are multiple transactions within a few days?

At the American Bar Association meeting held in August 2002, the SEC indicated that the total holdings column of a Form 4 (or any Section 16 report) should reflect aggregate holdings, transactions reported. Aggregate holdings should not include transactions that will be the subject of a future Section 16 report.

F. Disclosure of Deficient Filings.

Does a company have to make disclosure under Regulation S-K, Item 405 in its proxy statement (or Form 10-K) if a Form 4 is incorrect?

At the American Bar Association meeting held in August 2002, the SEC noted that Regulation S-K, Item 405 disclosure is only required for untimely filings, not for reports containing inadvertent miscalculations. However, the SEC has not provided written, more formal guidance on the topic.

If a report contains an error that may be corrected by filing an amendment, then generally there should be no Regulation S-K, Item 405 issue. However, if the error is that a transaction was not reported (or reported late), then disclosure under Regulation S-K, Item 405 is appropriate.

Is there a transition period for disclosure under Regulation S-K, Item 405 with the new reporting requirements?

In Release No. 34-47809, the SEC has indicated that, for the first year, it will not require Regulation S-K, Item 405 disclosure of any Form 4 that is filed no later than one business day later than required.

What about the 5:30 p.m. EDGAR filing deadline for Section 16 reports?

In Release No. 34-47809, the SEC stated that, given the unfair burden on West Coast issuers, it will deem any Section 16 report filed before 10:00 p.m. as having that day's filing date. The time extension applies to all issuers regardless of time zone. Usually, anything that is filed on EDGAR after 5:30 p.m. has a filing date of the next business day.

G. Website posting of Section 16 Reports.

By what date must Section 16 reports be posted on issuer websites?

By June 30, 2003, issuers must post all of the Section 16 reports filed by their insiders on the corporate website, if they have one. If the issuer maintains more than one website, Section 16 reports should be posted on the website that handles investor relations. If an issuer does not have a website, there is no requirement to post Section 16 reports.

How much time do issuers have to post Section 16 reports filed by their insiders?

Each Section 16 report must be filed on the corporate website no later than the end of the business day following the date of filing.

May issuers post Section 16 reports by providing links to a third-party provider?

Release No. 34-47809 permits issuers to satisfy the posting requirement by providing hyperlinks to a third-party provider if the following conditions are met:

• Reports are available in an appropriate time frame;
• Access to reports is free of charge to the user;
• The display format allows retrieval of all information on the forms;
• The medium to access the forms is not so burdensome that users cannot effectively access information;
• The access includes any amendments or attachments;
• The forms are available to investors for at least 12 months;
• Access to the forms is through the issuer website address the issuer normally uses for disseminating information to investors; and
• The hyperlink is directly to the Section 16 forms (or a list of Section 16 forms) and not a home page or general search page.

Given that issuers must post the Section 16 reports of all their reporting persons, including their 10% shareholders over whom they may not have great control, issuers may wish to consider posting Section 16 reports by linking to the SEC website directly. Otherwise, issuers will be entirely dependent upon the goodwill of these shareholders to send them copies of Section 16 reports in a time frame and format that will facilitate compliance.

H. Emerging Best Practices.

How can issuers assist their insiders to comply with the filing requirements of Section 16?

Most securities law practitioners recommend that issuers make their insiders aware of Section 16 reporting requirements and how they have changed. The filing requirement rests with the insiders directly, but issuers can show that they have good compliance procedures in place by ensuring that insiders know their responsibilities.

Many issuers have compliance policies that require insiders to clear trades involving issuer securities before execution. This provides issuers with the opportunity to prevent violations of other securities laws as well as non-compliance with Section 16 reporting.